2010 International Conference on E-Business and E-Government

A Case Study of Online Retail Innovation System

On Alibaba Taobao
Yongquan Hu Shukun Zhao
Modern Commerce Research Center Modern Commerce Research Center
Zhejiang Gongshang University Zhejiang Gongshang University
Hangzhou,China Hangzhou, China

Abstract—Online retailing contains enterprises with highly types which are process innovation, product innovation, functional
innovative characteristics. In this paper, taking the online retail innovation and cross value chain innovation based on many scholars’
business of Alibaba China as the case study sample, the global research in its report named Competing through Innovation and
value chain (GVC) innovation theory is used to research the
innovative practices of Alibaba's online retail business based on Learning.
the literature research regarding the online retail business B. Regarding research of non-store business innovation
innovation theory. Through selection of major innovation events
about online retail business of Alibaba Taobao, we carry out Non-store business is such kind of operation mode with
content analysis according to the GVC innovation theory, and characteristics of low-cost, high-tech, multi - area, personalities, that
deeply analyze the innovation system of Taobao from five the manufactures and distributors directly provide commodities and
perspectives which includes innovation goals, process innovation, services to consumers not through a physical store and avoid middle
product innovation, functional innovation and chain innovation. links as much as possible (Gu Xiao-yu, 2008). The new National
Keywords-Retail Innovation;Online retailing; Alibaba; Taobao; Standards of "Retail Business category" come into operation October
Innovation System 1, 2009, which divide non-store business into five types including TV
shopping, mail-order, online store, kiosk and Telephone Shopping.
I. INTRODUCTION C. Regarding research of online retail enterprise operation
It has important theoretical significance and practical strategies
significance to study the strategies of successful enterprises under How can Taobao be a dark horse in just two years, its hyper
such a situation that some Internet retailers have already entered the growth depends more on its effective competitive strategies besides
Chinese market and developed rapidly within a few years. From a the development of Internet economy, which include four factors, ձ
theoretical point of view, it plays an important role for the deep and get into the market quickly with free charge; ղ win users by
systematic analysis of network platform running to promote the accustomed setting; ճ Third-party payment platform to ensure
transactions (Wang Jing-yi, 2006).
further development and improvement of China’s platform
We hope to change our present situation by means of studying
development. From a practical point of view, the strategic choice of the integration innovation with e-commerce on the global value chain.
network enterprise has an important guiding role in helping Providing an abundance of cheap commodities, paying the heave
companies to understand whether they have their own costs of energy and environment, Chinese companies ultimately are
competitiveness and avoid going astray. assigned very small part of the profits on global value chain. As
China is not a resource rich country, it clearly can not last long with
II. LITERATURE REVIEW labor and investment to spur economic growth, so we have to find a
new way to participate in the global competition in order to change
A. Regarding research of the GVC innovation the current pattern, while the e-commerce will provide us with such
an opportunity.
Enterprise innovation system, refers to the sum of conditions,
rules, procedures, methods on which all the activities depend, which
are made by the enterprise innovators by means of the invention, the
management of the discovery of opportunities in the market and
through the factors of production and production conditions and the
related resource allocation for new changes(Yuan Li, 2005). Global
value chain innovation is that the enterprises on value chain achieve
the value-added activities by linking methods, institutional
arrangements, which is also the expansion of the value chain process.
John A. Mathews, Dong-Sung Cho and many other scholars have
studied the issue of global value chain innovation to carry out useful
research; UNIDO divides the global value chain innovation into four

978-0-7695-3997-3/10 $26.00 © 2010 IEEE 224

DOI 10.1109/ICEE.2010.64

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 III. THE CONCEPT AND FRAMEWORK OF ONLINE RETAIL (consumers to consumers), B2C (business to consumers).The users
ENTERPRISE INNOVATION SYSTEM registered of Taobao has exceeded 80 million, which includes most
of the net purchases and covering most of China's online shopping
From the perspective of GVC, only some special value links can population. In 2007, Taobao's transaction volume achieved 433
bring about higher added value, the auxiliary and supporting links billion, which is increase156% over 2006. In the first half of 2008,
lower value. Generally speaking, these high added-value chains are the turnover had reached 41.3 billion Yuan. According to the third-
the strategic links on GVC. Who seizing these strategic links will party’s authoritative survey in 2008, Taobao occupies 56.3 percent of
come to grasp the entire value chain, thus control the whole industry China's online shopping market share. As to C2C market share, the
[1].Therefore, as an emerging retail mode, business innovation number is 83.9%.
system needs to be design to online retail industry with the goal that
the strategic value links can be embed and controlled and the GVC Tableĉ. The Turn over of Taobao
status improved. Online retail enterprises gradually build up the GVC
driven by their selves through their advantages of transaction Year 2003 2004 2005 2006 2007 2008
efficiency, transaction price, transaction security and brand, to Turnover (billion) - 2.3 8.9 16 40 43.7
arrange the suppliers producing and packing the commodities in
according with their requirements, to complete the integration and
management of the whole value chain through the supply chain B. Identification and analysis of the key innovation events of
management, and to occupy the high end of global value chain links. Taobao
TableĊ. Key innovation events of Taobao
Developing Developing Developing Core country/M ain market
Country A Country B Country C Developing Country A NO. Main innovation events

Introduce the third-party payment tool "Alipay" in
Ł
October,2003
Showcase sales was implemented by the require of the
(2)
general membership, November,2004
(3) New Hong Kong Street site ,January ,2005
Producer B Producer C Taobao was named for the first Internet sponsor of the
Material Supplier A (Bas ically (Assembly) Retailers (4)
produce) Moto GP, April,2005
The common network channels MSN and Taobao come
˖Flow s of capitals, technology, design and materials
(5)
forth, May, 2005
Figure 1. The GVC driven by online retail enterprises (6) The digital certificates of Alipay show up, March, 2006
The auto-delivery platform of Virtual cards was on line.
(7)
As shown in Figure 2, the GVC strategic innovation mode of June, 2006.
retail enterprises consist of four levels that are process, product, (8) Taobao University was on-line newly, July, 2006.
function and value chain upgrading. Each level reflects and Group purchase and purchase substitute was on line.
(9)
determines some status and competitiveness of industry value chain, February ,2007
the higher the level is, the higher the status is, and so is the E-ticket online ordering platform of Taobao was put out,
(10)
competitiveness. February, 2007
(11) B2C business and Taobao Mall were put out, April, 2008
Value Added

Value Chain Taobao announced a strategic partnership with Jet Li's One
(12)
B2 C2
Foundation in Hang Zhou, July, 2008
Taobao announced formally to use 5 billion to build large
(13)
A2 Taobao and Taobao is still free, September, 2008
Value Chain
Chain Innovation (14) The features of fitting room is on-line ,November, 2008
B1 C1
A delegation innovation base in Yuhang formed and
(15)
Taobao city was officially launched. December, 2008
Functional Innovation (16) Taobao started "quick Taobao" program, February, 2009
A1 Process/Product Innovation
Release Taobao order management systems and store-level
(17)
systems, February, 2009
Value Chain Sequence
Taobao announced to launch the "net flow of goods
Figure 2. Online retailing enterprises’ GVC innovation strategic system (18) recommended index" with ten domestic and foreign
logistics enterprises jointly, March ,2009
The consumer protection scheme upgrade again.
IV. THE INNOVATION SYSTEM EVOLUTION HISTORY OF (19)
March ,2009
TAOBAO Japan's leading clothing brand UNIQLO was put on
(20)
Taobao shop, April, 2009
A. Introduction of Taobao (21) IE8 browser implant into Taobao’s function, May, 2009
Taobao is the largest network of retail and business district in Alipay decided to co-operate with Japanese retailer Marui
(22)
the Asia-Pacific region, which focus on building the world's leading Department Store(http://maruione.jp/cn/), June 15, 2009
network of retail and business district. It was built with the Note: In the all 22 innovative events, (12) and (20) are not belonged to the global value chain of
innovation systems
investment of Alibaba Group in May 10, 2003, and its mission is "No
treasure can not be found, and no treasure can not be sold." The
current business of Taobao includes two major parts: C2C

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 Table ċ. The distribution of innovative events of Taobao upgrading plan was added to the Consumer Protection Program
Terms and Conditions.
Process innovation characteristics of Taobao
Innovation
Taobao is the first to introduce the third-party payment tool into
System shopping process, according to CNNIC survey, as of March 2006,the
Dimension online payment use ratio is 94% and 63% on Taobao and eBay, of
Chain (4) (16)  which the use of Alipay is 95%.Alipay is used for free on Taobao,
 (13)(15)
innovation (5) (22) while outside , AliPay charged the merchant for platform fees.
Function ˄9˅  Taobao's business flow chart is shown in Figure 4:
˄11˅
Innovation (10) /RJLVWLLFV
/RJLVWLFV
Product (6)  &RPSDQ\
(2) (3) ˄8˅ (14) (21)
Innovation (7)
(17) 6XERUGLQDWH &RRSHUDWLRQ

Process
(1) (18) ,QIRIORZ˖,VVXHSURGXFW ,QIRIORZ˖9LHZ
Innovation (19) 6HOOHU
7DREDR
%X\HU
%DUJLQJˈSURFHVVRUGHUV %DUJLQJˈRUGHU
2003 2004 2005 2006 2007 2008 2009 Year
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V. THE GLOBAL VALUE CHAIN INNOVATION SYSTEM OF

TAOBAO Figure 4. Taobao's business flow chart
C. Product innovation system of Taobao
A. Innovation system goal of Taobao
Concept of Product innovation
Taobao would build a preferred global retail business district, Product innovation refers to that, enterprises gradually develop
which contains two connotations: from the terms of number, Taobao their own R&D capabilities to improve product grade and cultivate
should be the world's leading in transaction volume; from the terms products with their own intellectual property to gain the advantage
of nature, is to catch up with the traditional retail retailing. From the exceeding competitors with the mastery of critical core technology
global value chain perspective of innovation theory to interpret, and the occupation of higher value-added chain.
Taobao's goal is to pursue personal trading platform position in the Product innovation content of Taobao
global value chain upgrading. Global value chain innovation system Taobao has abundant product categories which are continually
model shown in Figure 3: enriched, whose existing categories are virtual class, digital class,
Product
skincare class, clothing, household, entertainment and sports class,
Innovation collections and other classes. Japan's leading clothing brand
UNIQLO open its shop, which made Taobao more branding.
Showcase sale is the optimized trading platform innovation. Taobao’s
online dressing rooms made buyers feel more intuitive and easier to
Chain
Innovation
goal: Function
buy.
Innovation Improve Innovation Product innovation characteristics of Taobao
GVC status
The biggest characteristic of Taobao is free to shop, free
platform made many sellers save a lot of money, and the plenty and
clear categories and user-friendly interface help to win customers. In
Process
order to control charges, eBay requires buyers contacting with sellers
Innovation only after goods are ordered and do not support private
communications. Through the chat tool "Ali Wangwang" similar to
QQ, Taobao enable buyers and sellers communicate online directly,
Figure 3. Global value chain innovation system model of Taobao and may even become friends during chat, which is very consistent
with Chinese habit of doing business, that’s why Taobao is deeply
B. Process innovation system of Taobao
welcomed.
Concept of Process innovation
Process innovation of Taobao, is refers to that through the D. Functional innovation system of Taobao
unceasing production technology, the technical process, the operation Concept of Functional innovation
flow research and development and the innovation as well as the Functional innovation mainly refers to that enterprises occupy
implementation to the manufacturing system's renewal the leading position on GVC relying on its own brand. Taobao want
transformation, enterprises establish the advanced manufacturing to be the world's first retail shopping district. In 2007, Taobao is no
capacity and master the essential core technique of manufacture longer a simple auction site, but Asia's largest online retail shopping
gradually to realize transformation from preliminary, auxiliary link to district.
the high added value link, thus improve the enterprise global value Functional innovation content of Taobao
chain status and obtain the share of big profit.. Global Shopping Service and fleet functions made Taobao
Process innovation content of Taobao closer to the world's preferred retail network circle. It’s a milestone
Taobao creatively introduced a third-party payment "Alipay" to for the release of Taobao’s e-ticket online ordering platform that
minimize the risk of online transaction, issued the order management Taobao is no longer a purely online department store, but rather to
and shop system that allows an individual to buy goods in bulks, so bring a bigger and more convenient shopping platform to consumers.
orders more convenient to be purchased; consumer protection The emergence of B2C model of Taobao Mall provides a reliable

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baby antecedents and quality. ACKNOWLEDGEMENT
Functional innovation characteristics of Taobao This research is supported by Social Science Fund of Ministry
With the improvement of operation capabilities, companies in of Education (06JA630066), Social Science Fund of Zhejiang
value chain can establish their own leading status surrounding Province (09JDZS001Z),Base Project in Universities of Zhejiang
operational implementation of the global realignment of the value Province(1010JF250502), Producer’s Service Innovation Research
chain through fierce competitions and overthrowing the existing Team of Modern Commerce Research Center in Zhejiang Gongshang
value chain. The embedded industries have already had a strong
University(09JDSM06YB)
competitive power with this leadership.
Taobao’s turnover was 43.3 billion in 2007, which is nearly
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